expenses for prescription drugs, and other expenses that Medicare doesn’t cover, such as
hearing aids and eyeglasses.

Even if you face no other costs, paying for premiums and deductibles for the traditional Medicare
choices of Parts A, B and D (rather than opting for
the Medicare Advantage program known as Part
C) can quickly eat up retirement savings. Consider:
Part A covers inpatient hospital costs, stays in
skilled nursing facilities, home health care visits
and hospice care. Most beneficiaries pay no premium for Part A, but there is a deductible of $1,184
this year for inpatient hospital stays.

Part B, which covers doctor visits, outpatient services, preventive care and some home
health visits, does charge a premium, and in

2013 the standard monthly premium is $104.90—or
$1,258.80 for the year. The
deductible is $147.

Part D, the drug plan that
had more than 32 million
beneficiaries enrolled in
2012, charges an average
monthly premium of about
$40—or $480 a year.

Put it all together and
you’re looking at $3,069.80 a
year for basic Medicare coverage, assuming you meet
your hospital deductibles.
And unless you stay out of
a hospital altogether, you
will meet the deductible.
The average cost of a hospital stay in 2009, according
to the federal Agency for
Healthcare Research and
Quality, was $2,000 a day,
and the average stay cost
$9,200. Even if these were
the only health care costs
you incur, in 10 years your
annual spending would be
$30,698 at today’s prices,
and higher if health care
costs continue to rise faster
than the cost of living.

Given the news from the
Employee Benefit Research
Institute that 60 percent of
workers report that they or
they and their spouses have
saved less than $25,000 for
retirement (excluding the

Part A
Hospital stays:
$1,184

Part B
Doctor visits:
$1,405.80

Part D
Drug coverage:
$480

value of their homes and pension plans), it’s going to be a tight squeeze for many retirees.

A 63-year-old former high school English teacher, Fero has diabetes and severe osteoporosis, for
which she takes the prescription drug Forteo. In
addition to the cost of Part D premiums, Medicare recipients may find themselves paying more
if they reach the so-called doughnut hole. Here’s
how it works: Once total retail drug costs under
the plan exceed $2,970 (in 2013), those with Part D
start paying 47.5 percent of the cost of brand-name
drugs and 79 percent of the cost of generics until
the costs of that and other drugs reach the cap of
“I’m in that group of fortunate people
who can pay, but it’s taken a lot,” Fero says.
She and her husband, Bruce, also a retired
teacher, have an income of about $65,000.
They budget carefully to cover health care
costs, which now consume about 40 percent of their income.

Fortunately, health care spending for

Total Annual
Cost of Basic
Medicare
$3,069.80

 Retirees Pat and Bruce Fero

most Medicare beneficiaries isn’t that high. But
it does represent, on average, nearly 15 percent
of what Medicare households spend, according
to the Kaiser Family Foundation. That’s three
times more than non-Medicare households
spend. And for those 80 and older, average
health care spending accounts for just under 18
percent of household spending.

In addition to the money needed to cover basic premiums and deductibles and coinsurance,
you’re also going to be responsible for routine dental care, routine eye care and hearing aids and the
exams for fitting them, because Medicare doesn’t
pay for those. The American Dental Association
estimates that two exams and cleanings and a set
of X-rays in 2011 cost about $288, on average.

Hearing aids can range from $900 to more than
$3,000 each, depending on the technology, says
Bettie Borton, president-elect of the American
Academy of Audiology. Some are built with Blue-tooth capability that streams sound from your
cellphone into both ears, making it much easier
to hear a telephone conversation, she says.

Hearing aids do need to be replaced periodically. Borton estimates that with proper care and
maintenance (batteries are a continuing cost)
they will last about five years. Hearing tests are
covered by Medicare only when they are medically necessary, such as in the case of severe vertigo or a traumatic injury to the ear, she says.

So what can you do to help cover your health
care costs? If you’re lucky, you have employer insurance or retiree insurance. In 1988, 66 percent
of retirees from large firms (which are the most
likely to provide coverage) had employer-provid-ed health insurance. But only 25 percent of such
firms now ofer retiree health benefits, according to Shaun O’Brien, assistant policy director for
health and retirement for the AFL-CIO.

Veterans who qualify for health benefits can get health
care and prescription drugs through
the Department of
Veterans Afairs, but
if they need treatment outside a VA
If you are in an IRS-defined high-deductible
health plan, you might consider a health savings
account. According to Rich Bailey, principal at
benefits consultant Mercer, HSAs “can be funded
while the employee is active and working and